Rancho Bernardo Savings Bank Put Into Receivership

The federal Office of Thrift Supervisions on Friday placed long-struggling Rancho Bernardo Savings Bank into receivership and created a new federally chartered S&L; that will assume many of the failed institution’s assets and liabilities.

The failed savings bank that had $119 million in assets on Sept. 30 reported nearly $5 million in losses during the past two years. Most of the losses were generated by a subsidiary’s involvement in a troubled residential development in Escondido.

The regulatory action dashed a planned recapitalization by Orange County thrift consultant Jim Gough, who had served as Rancho Bernardo Savings’ president and chief executive since June. Government thrift officials on Friday said that the S&L;’s financial woes predated the arrival of Gough.

The Rancho Bernardo-based savings bank, along with its branch offices in Rancho Penasquitos and Escondido, on Friday began operating as Rancho Bernardo Federal Savings Bank. The new institution is being run by the Resolution Trust Corp., a federal agency that disposes of failed institutions.

Deposits of up to $100,000 in the S&L; are insured by the Federal Deposit Insurance Corp., but shareholders have no ownership stake in the new institution, federal regulators said. Rancho Bernardo Savings had slightly more than 5,000 depositors, according to Resolution Trust.

As of Sept. 30, the S&L; was deficient in all three minimum capital requirements applied by regulators. Its tangible capital, the most stringent of the three capital tests, had fallen to a negative $808,953.

In a press release issued Friday, Gough said that the institution’s net worth evaporated when the OTS ordered Rancho Bernardo Savings to set aside $1.9 million in loan-loss reserves in connection with a troubled residential development in Escondido. The savings bank previously had recorded $2.9 million in reserves and writedowns in connection with the problem-plagued residential development.

Thrift Supervision officials, in a press release issued Friday, described Rancho Bernardo Savings as too dependent upon its troubled real estate subsidiary. The institution “had no viable alternative strategy” to lessen that dependence, according to government thrift officials.

The institution also “had not provided enough loan loss reserves to cover its non-traditional assets,” such as commercial mortgages, construction loans and direct real estate investments that accounted for 58% of its total assets, Thrift Supervision officials said. Creating suitable reserves would have “further crippled (the savings bank’s) capital position and future earnings potential,” according to the release.

The seizure came eight months after federal regulators had ordered the troubled institution to severely restrict new loan activity.

Gough became involved with Rancho Bernardo Savings early this year through the Thrift Supervision’s San Francisco-based Capital Enhancement Group. The group, which tries to match potential investors with cash-hungry S&Ls;, has arranged nearly 20 successful deals in California, Arizona and Nevada.

In late June, Gough’s investment group signed a definitive agreement that would have pumped $2.5 million into the savings bank. The group’s investment was contingent upon the completion of a private offering that would have raised an additional $6.5 million. As part of that agreement, the Office of Thrift Supervision in June took the unusual step of allowing Gough to serve as Rancho Bernardo Savings’ president and chief executive, even though the cash infusion had not yet been completed.

Gough, during an interview earlier this year, expressed confidence that the private offering would have been completed by the spring.